Short answer. Yes. Article 2087 of the Civil Code provides that it is of the essence of a pledge or mortgage that, when the principal obligation becomes due, the thing pledged or mortgaged may be sold to pay the creditor. Once the loan matures and is unpaid, the collateral can be alienated to satisfy the debt.
What the law says
when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.
Civil Code, Article 2087 — Sale on Default. Read the full provision →
Sale on default is built into the security
Article 2087 states that It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. In other words, the whole purpose of pledging or mortgaging property is that, if you do not pay when the debt falls due, the creditor can look to that property. Selling the collateral to raise payment is not an abuse of the arrangement; it is the very thing the security exists to allow.
When the right arises
The trigger is that the principal obligation becomes due. Until the loan matures, the creditor's power to have the collateral sold has not yet ripened; it is the arrival of the due date, with the debt unpaid, that opens the door. The article speaks to both a pledge (typically over movable property) and a mortgage (over immovables and certain real rights), treating the sale of the security on maturity as essential to each.
What the article does not permit
Recognising that the property may be alienated for payment is not a licence for the creditor to grab and keep it outright, or to sell it in any manner he pleases. The law surrounds pledges and mortgages with rules on how a sale must be carried out and how proceeds are applied, and it forbids arrangements that let a creditor simply appropriate the thing. So while the answer to your question is yes, the sale must follow the proper process. If your collateral is being sold, ask how the sale is being conducted and how the proceeds are accounted for. Any surplus remaining after the debt and the costs of the sale are covered is yours to receive, not the creditor's to keep.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Philippine National Bank Binalbagan Branch, Binalbagan, Negros Occidental vs. Antonio Tad-Y, for himself, G.R. No. 214588, September 7, 2022 — read the decision on LawPhil →
- Ramona Ramos, et al. vs. Philippine National Bank, et al, G.R. No. 178218, December 14, 2011 — read the decision on LawPhil →
- Goldland Tower Condominium Corporation vs. Edward L. Lim and Hsieh Hsiu-Ping, G.R. No. 268143, August 12, 2024 — read the decision on LawPhil →
- Luzviminda Palo vs. Spouses Rey C. Baquirquir, G.R. No. 228919, August 23, 2023 — read the decision on LawPhil →